In 2001 Croatian Government launched the initiative aimed at loosening a high degree of centralization by extending the mandates of local units and changing the sources of financing public functions. However, initial steps in the process of decentralisation have not been followed by additional measures of fiscal decentralization, and consequently its level has stayed broadly unchanged. We elaborate main problems and obstacles in relation with actual implementation of the decentralization process and give three groups of proposals for decentralisation: (i) division of mandatory authorities among different local units, (ii) change in funding and (iii) modified territorial division of the countr